The bull call spread option trading strategy is employed

when the options trader thinks that the price of the

underlying asset will go up moderately in the near
term.
Bull call spreads can be implemented by buying an at-
the-money call option while simultaneously writing a
higher striking out-of-the-money call option of the
same underlying security and the same expiration
month.
Limited Upside profits
Maximum gain is reached for the bull call spread
options strategy when the stock price move above the
higher strike price of the two calls and it is equal to the
difference between the strike price of the two call
options minus the initial debit taken to enter the
position.
The formula for calculating maximum profit is
given below:

Max Profit = Strike Price of Short Call Strike
Price of Long Call Net Premium Paid
Commissions Paid

Max Profit Achieved When Price of Underlying
>= Strike price of Short Call
Limited Downside risk
The bull call spread strategy will result in a loss if
the stock price declines at expiration.
The formula for calculating maximum loss is given
below:

Max Loss = Net Premium Paid + Commissions Paid

Max Loss Occurs When Price of Underlying <=
Strike Price of Long Call
Breakeven point(s)
The underlie price at which break-even is
achieved for the bull call spread position can
be calculated using the following formula.
Breakeven Point = Strike Price of Long Call +
Net Premium Paid
EXAMPLE
Nifty index Current Value

4191.10
Buy ITM Call
Option
Strike Price (Rs.)

4100
Mr. XYZ Pays Premium (Rs.)

170.45
Sell OTM Call
Option
Strike Price (Rs.)

4400
Mr. XYZ
Receives
Premium (Rs.)

35.40
Net Premium Paid
(Rs.)

135.05
Break Even Point
(Rs.)

4235.05
Strategy : Buy a Call with a lower strike (ITM) + Sell a Call with a higher
strike (OTM)

PAYOFF OF BULL CALL SPREAD
On expiry
Nifty Closes
at
Net Payoff from Call
Buy (Rs.)
Net Payoff from
Call Sold (Rs.)
Net Payoff
(Rs.)
3600.00 -170.45 35.40 -135.05
3700.00 -170.45 35.40 -135.05
3800.00 -170.45 35.40 -135.05
3900.00 -170.45 35.40 -135.05
4000.00 -170.45 35.40 -135.05
4100.00 -170.45 35.40 -135.05
4200.00 -70.45 35.40 -35.05
4235.05 -35.40 35.40 0
4300.00 29.55 35.40 64.95
4400.00 129.55 35.40 164.95
4500.00 229.55 -64.60 164.95
4600.00 329.55 -164.60 164.95
4700.00 429.55 -264.60 164.95
4800.00 529.55 -364.60 164.95
4900.00 629.55 -464.60 164.95
5000.00 729.55 -564.60 164.95
Bull Spread Using Calls

X
1
X
2
Profit
S
T
Spread- Bull Spread-Example
An investor buys for Rs.8 a call with a strike price of
Rs.50 and sells a call for Rs.5 with a strike price of
Rs.60.
Bull Spread Long Call EX Price Rs-50 & Premium Rs 8 (X1)
Received, Short Call Ex Price Rs-60 & Premium Rs 5 (X2)
Given.
Share Price Ex Price X1
(Long call)
Profit on
Ex. (X1)
Ex Price X2
(Short call)
Profit on
Ex. (X2)
Net
Profit/Loss
40 50 -8 60 5 -3
45 50 -8 60 5 -3
50 50 -8 60 5 -3
55 50 -3 60 5 2
60 50 2 60 5 7
65 50 7 60 0 7
70 50 12 60 -5 7
80 50 22 60 -15 7
Bull Put Spread
The bull put spread option trading strategy is
employed when the options trader thinks that
the price of the underlying asset will go up
moderately in the near term.
The bull put spread options strategy is also
known as the bull put credit spread as a credit
is received upon entering the trade.
Bull put spreads can be implemented by selling a higher
striking in-the-money put option and buying a lower
striking out-of-the-money put option on the same
underlying stock with the same expiration date.

Limited Upside Profit
If the stock price closes above the higher strike price on
expiration date, both options expire worthless and the bull
put spread option strategy earns the maximum profit which
is equal to the credit taken in when entering the position.

The formula for calculating maximum profit is given below:

Max Profit = Net Premium Received Commissions Paid

Max Profit Achieved When price of Underlying >= Strike
price of Short put
Limited Downside Risk
If the stock price drops below the lower strike
price on expiration date, then the bull put spread
strategy incurs a maximum loss equal to the
difference between the strike prices of the two
puts minus the net credit received when putting
on the trade.

Max Loss = Strike Price of Short Put Strike Price
of Long Put Net Premium Received +
Commissions Paid

Max Loss Occurs When Price of Underlying <=
Strike Price of Long put
Breakeven Point(s)
The underlier price at which break-even is
achieved for the bull put spread position can
be calculated can be calculated using the
following formula.
Breakeven Point = Strike price of Short Put -
Net Premium Received
EXAMPLE
Nifty Index Current Value

4191.10
Sell Put Option Strike Price (Rs.)

4000
Mr. XYZ Receives Premium (Rs.)

21.45
Buy Put Option Strike Price (Rs.)

3800
Mr. XYZ Pays Premium (Rs.)

3.00
Current Value Net Premium
Received (Rs.)
18.45
Break Even Point
(Rs.)
3981.55
Strategy : Sell a Put + Buy a Put
PAYOFF OF BULL PUT SPREAD
On expiry Nifty
Closes at
Net Payoff from
Put Buy (Rs.)
Net Payoff from
Put Sold (Rs.)
Net Payoff
(Rs.)
3500.00 297.00 -478.55 -181.55
3600.00 197.00 -378.55 -181.55
3700.00 97.00 -278.55 -181.55
3800.00 -3.00 -178.55 -181.55
3900.00 -3.00 -78.55 -81.55
3981.55 -3.00 3.00 0.00
4000.00 -3.00 21.45 18.45
4100.00 -3.00 21.45 18.45
4200.00 -3.00 21.45 18.45
4300.00 -3.00 21.45 18.45
v4400.00 -3.00 21.45 18.45
4500.00 -3.00 21.45 18.45
4600.00 -3.00 21.45 18.45
4700.00 -3.00 21.45 18.45
4800.00 -3.00 21.45 18.45
Bull Spread Using Puts
X
1
X
2
Profit
S
T
An investor buys a put option with an exercise
price equal to Rs.40 for Rs.6 and writes an
option identical in all respects except the
exercise price that is equal to Rs.50 for a price
of Rs.9
Bearish Trading Strategies
Bearish strategies in options trading are
employed when the options trader expects
the underlying stock price to move
downwards.
It is necessary to assess how low the stock
price can go and the timeframe in which the
decline will happen in order to select the
optimum trading strategy.
BEAR CALL SPREAD STRATEGY: SELL
ITM CALL, BUY OTM CALL
When to use: When the investor is mildly bearish
on market.

Risk: Limited to the difference between the two
strikes minus the net premium.

Reward: Limited to the net premium received for
the position i.e., premium received for the short
call minus the premium paid for the long call.

Break Even Point: Lower Strike + Net credit

EXAMPLE
Nifty index Current Value

2694
Sell ITM Call
Option
Strike Price (Rs.)

2600
Mr. XYZ
Receives
Premium (Rs.) 154
Buy OTM Call
Option
Strike Price (Rs.) 2800
Mr. XYZ pays Premium (Rs.)

49
Net premium received
(Rs.)
105
Break Even Point (Rs.)

2705

Strategy : Sell a Call with a lower strike (ITM)+ Buy a Call with a higher
strike (OTM)
PAYOFF OF BEAR CALL SPREAD
On expiry
Nifty Closes
At
Net Payoff from Call
Sold (Rs.)
Net Payoff from Call
bought (Rs.)
Net Payoff
(Rs.)
2100 154 -49 105
2200 154 -49 105
2300 154 -49 105
2400 154 -49 105
2500 154 -49 105
2600 154 -49 105
2700 54 -49 5
2705 49 -49 0
2800 -46 51 -95
2900 -146 151 -95
3000 -246 251 -95
3100 -346 351 -95
3200 -446 451 -95
3300 -546 551 -95
When to use: When you are moderately bearish on
market direction

Risk: Limited to the net amount paid for the spread. i.e.
the premium paid for long position less premium
received for short position.

Reward: Limited to the difference between the two
strike prices minus the net premium paid for the
position.

Break Even Point: Strike Price of Long Put Net
Premium Paid




BEAR PUT SPREAD STRATEGY:BUY PUT,
SELL PUT




EXAMPLE
Nifty index Current Value

2694
Buy ITM Put Option Strike Price (Rs.)

2800
Mr. XYZ pays Premium (Rs.)

132
Sell OTM Put Option Strike Price (Rs.)

2600
Mr. XYZ receives Premium (Rs.)

52
Net Premium Paid
(Rs.)
80
Break Even Point
(Rs.)
2720
Strategy : BUY A PUT with a higher strike (ITM) + SELL A PUT with a
lower strike (OTM)
PAYOFF OF BEAR PUT SPREAD
On expiry Nifty
closes at
On expiry Nifty
closes at
Net Payoff from
Put Sold (Rs.)
Net payoff
(Rs.)
2200 468 -348 120
2300 368 -248 120
2400 268 -148 120
2500 168 -48 120
2600 68 52 120
2720 -52 52 0
2700 -32 52 20
2800 -132 52 -80
2900 -132 52 -80
3000 -132 52 -80
3100 -132 52 -80